Banking Union: Where Are We Now and Where Are We Going? Vitas Vasiliauskas Chairman of the Board 17 October 2013

Outline Key elements of the Banking Union: Single Supervisory Mechanism; Single Resolution Mechanism; Deposit Guarantee Framework. Other financial sector reforms

Why a Banking Union? A well-functioning single market requires integrated financial regulation and oversight: The same high-quality standards for banks; Safeguarding taxpayers’ money; Timely intervention and effective crisis resolution.

Single Supervisory Mechanism The ECB will assume new supervisory powers in November 2014: Responsible for supervising significant banks (~130) and the functioning of the SSM as a whole; Relies on the national authorities that remain responsible for supervising less significant banks. Asset quality review followed by stress-testing to be announced in October; Work on ensuring backstop arrangements.

Bank Recovery and Resolution Directive Harmonises crisis management and resolution tools; minimises taxpayers’ exposure to losses; On-going negotiations with the Parliament; Main issues: National discretion in using bail-in instruments and creditors’ hierarchy; Minimum loss-absorbing capacity of banks; Designation of the national resolution authority. Presidency objective: final agreement by end-2013.

Single Resolution Mechanism Aims at effective resolution of cross-border banks; First discussions at the informal ECOFIN in Vilnius; Main issues: Role of the Commission; Voting modalities in the Resolution Board; Centralisation of decision-making powers. Presidency objective: general approach in the Council by end-2013.

Deposit Guarantee Framework Deposit Guarantee Schemes Directive aims at harmonising national frameworks; The Presidency has recently started negotiations with the Parliament; Presidency objective: final agreement by end-2013; A European deposit guarantee scheme should be seen as a final objective.

Controlling systemic risks Macro-prudential, or system-wide, regulation targets at preventing systemic risks; Progress on establishing a European framework: Establishing the European Systemic Risk Board; Assigning macro-prudential mandates to national institutions; Binding macro-prudential powers to the ECB. Complements the Banking Union.

Structural Banking Reforms Need to address the complexity of banking, distorted incentives and the too big to fail problem; National initiatives on bank structural reforms in a number of countries; A legislative proposal expected in November; Presidency objective: initiate discussions; Should complement the Banking Union.

Conclusion Main priority — the Banking Union and resolution framework in particular; Our main goal should be to have a complete framework; The Banking Union needs to be complemented with: A sound European macro-prudential framework; Structural reforms of the EU banking sector.